Deciding to file for divorce is one of the most difficult decisions many people will ever make. Beyond the emotional impact of severing ties with a person they thought would be a lifetime partner, the economic and legal effects of a divorce might disrupt the rest of their lives. This possibility is particularly concerning if one or both spouses have a high net worth.
A high net worth divorce will typically involve family law matters like child custody and shared property. It could also affect business, retirement, investments, and other issues. Suppose you are at a crossroads and must consider divorce and have significant assets to take into account. In that case, there are specific steps you can take to protect your rights, and an experienced divorce lawyer can help.
At Massey, Stotser & Nichols, our top-notch high net worth divorce attorneys know how to protect your rights and help set you up for future success. We have what it takes to help you get the divorce terms you deserve and protect your assets. Our skilled divorce lawyers will thoroughly investigate your case and help you get the information you need to make your family’s best choices. Ultimately, we will do our best to make sure the divorce doesn’t disrupt your life any more than necessary.
As with any divorce, high net worth individuals must follow state and local divorce laws. To file for divorce in Alabama, both spouses must be residents of Alabama or the person filing for divorce must have lived in the Alabama county where they are filing for at least six months. Per state law, spouses can file under one of two terms:
Having to decide where children will live, who provides for them, and how often each spouse visits the children is often one of the most vital and emotional parts of a divorce. Parents want to do all they can to shield children from the impacts of divorce, but trying to determine what level of support children will need after the split is difficult, especially in high net worth divorces.
In child custody and visitation agreements, the main priority of Alabama courts is to serve the child’s best welfare. This does not mean that the spouse with a higher income will automatically get custody. Courts evaluate numerous factors in custody decisions, including each parent’s abilities and interest to care for the child’s safety and wellbeing, which arrangement will disrupt the child’s life as little as possible, and sometimes what the child wants to happen.
Suppose the court divides custody between the parents. In that case, each parent must continue to live close to each other after the divorce to facilitate the children’s attendance at school and other activities. However, suppose the court grants one primary parent custody. In that case, the non-custodial parent generally has more flexibility in where they live. The court might even consider allowing electronic visitations with the non-custodial parent.
The court will also determine how much money each spouse must provide to support the children’s reasonable needs. Alabama law has a Schedule of Basic Child-Support Obligations that defines the minimum amount of support needed according to the parents’ combined income and how many children they have. However, when one or both spouses have extensive personal assets, it can make common divorce issues even more complicated.
Alabama courts typically use the “Income Shares Model” to determine child support, which means that each parent must continue to provide the same ratio of support to the children that they would have if they had remained married. Under this model, the court will evaluate how much the married couple would have spent on the child and then assign each estranged spouse an appropriate percentage of child support based on their incomes.
However, courts just use this calculation as a guide, and judges can adjust how much each parent owes based on things like each parents’ income. In high net worth divorces, these child support payments might provide much more than primary care and feeding of the children. IF the combined gross incomes of the parties exceed $240,000 per year ($20,000 per month), the child support guidelines do not apply and the court must determine child support based up[on what it deems to be the reasonable needs of the children and the appropriate contribution of each parent.
For example, wealthy parents might want their children to go to a private school with high-cost tuition or that involves costly studies abroad. They might also have a full-time or part-time nanny, send the children to summer camp or enroll them in expensive extracurricular activities. All of these needs might be essential factors in deciding how much child support to seek.
Parents might want to provide for the children’s future through funds set aside for university tuition, sorority/fraternity dues, life insurance benefits, or trust funds. While the court typically can’t order support payments after the children turn 18, a comprehensive separation agreement can address funds to protect their future.
Alabama law doesn’t mandate specific guidelines for spousal support, but it does provide for multiple types of alimony. For example, courts have discretion in deciding which spouse pays spousal support, how much they pay, how long they must pay, and whether they should make payments in a lump sum or regular disbursements.
A court might even grant temporary spousal alimony while the divorce proceeding is ongoing. It’s especially important to consider temporary alimony in a high net worth divorce. These proceedings often take longer than a typical divorce. In Alabama, factors that judges typically consider in determining temporary alimony and post-divorce spousal support include:
The court has a lot of leeway in determining what “standard of living” each spouse should maintain after the divorce. In evaluating how much spouses need, it’s critical to make a comprehensive list of expenses to make sure they aren’t surprised by costs after alimony payments are decided.
Expenses might include everyday things like rent or mortgage payments, home repairs, car and transportation expenses, household goods, clothing, groceries, pet costs, debts, and utility bills. Additional expenses in high net worth divorces include housekeepers, lawn care, property owner fees, vacation properties, country club dues, health club memberships, hair and nail salon services, eating out and entertainment, holidays, gifts, and charitable donations.
It’s also important to consider expenses that aren’t always obvious, like inflation and other future costs. For example, both spouses might have been on the health insurance of one of the spouse’s employers. After the divorce, a nonworking spouse might be forced to pay expensive premiums through COBRA or find a cheaper private plan that doesn’t fully cover their medical care or has high out-of-pocket costs.
No matter the final divorce decree, the spouse paying alimony can typically petition to stop payments if their former spouse gets remarried or is cohabitating with someone. Additionally, spousal support payments are terminated if either of the former spouses dies.
Amid a divorce, spouses might mutually agree to divide property between themselves or sell everything and split the profits. However, this aspect is often one of the most challenging and controversial parts of the divorce. In many cases, the couple can’t agree on how their marital assets should be divided. If the couple can’t come to a resolution on their own, they will need to take the matter to the courts.
Under Alabama law, the estate will then be subject to “equitable distribution.” This orders judges to divide marital property fairly and equitably, which doesn’t necessarily mean it will be divided exactly in half. Alabama judges have discretion in determining how the marital estate will be divided and might look at multiple factors.
A property might include all sorts of financial assets, such as cash on hand, stocks, annuities, bonds, and mutual funds. A property might also have current and future income like wages, bonuses, profits from owned businesses, royalties, gifts and inheritance, income from real estate and other investments, insurance plans, vested and non-vested pensions, and other retirement assets. This includes physical property and intangible assets, such as intellectual property, houses, cars, and other valuable possessions. Debts accrued during the marriage, such as credit card balances, mortgages, car loans, and education debt, are considered “assets” that can be divided in a divorce.
The first factor in dividing the property is determining which assets are separate and which are marital property.
Marital property includes most property acquired by either spouse during the marriage and before the date of separation.
Any assets that a spouse acquired before the marriage or as an inheritance or gift are usually considered individual property, typically off-limits in a divorce. This typically includes any income received for the separate property, increases in the property’s value, and exchanged items for an individual property, even if the replacement property is put in both spouses’ names. However, there are multiple exceptions to these rules that might impact high net worth individuals, including:
Other factors that Alabama courts use in deciding how to divide the marital estate include:
Unlike in some states, Alabama law does not require judges to directly consider financial misconduct or a spouse’s wasting of marital assets when deciding how to divide the marital estate. However, the courts might consider any factors that led to the dissolution of the marriage (in a fault-based divorce). If the judge determines one spouse was mostly responsible for the breakup, then they might award the other spouse a higher percentage of the marital estate.
The complicated rules surrounding the marital estate division are difficult to understand and navigate on your own. To best protect your interests and extensive personal assets, it’s critical to have experienced legal counsel.
Prenuptial agreements, or “prenups,” are a common tool that wealthy individuals use to protect their assets when they get married. A valid deal can ease the process of dividing the marital estate. It provides legal proof of a person’s separate property. However, any agreement must be reviewed to ensure it is valid and legally binding before courts use it in the division of assets.
A judge might find the agreement invalid if fraud was involved in the terms or signatures. The prenup might also be unenforceable if one spouse required the other person to sign the agreement to get married or sign it under some other duress. Additionally, courts might dismiss the deal if the wealthier spouse hid some of their assets.
Amid a divorce, each spouse must submit a full list of their assets – both marital and separate property – to properly divide the marital estate. Financial disclosures involve a wide range of documents to show income, such as the list of assets and debts, bank statements, pay stubs, tax returns, credit card statements, and other financial statements or legal documents.
Asset disclosures also involve a summary of essential household goods like furniture and kitchenware. One spouse will likely need to purchase new household items after the divorce. Also, with high net worth divorces, it’s essential to compile a list of other valuable possessions like automobiles, airplanes, yachts, boats, jewelry, watches, fine art, valuable antiques, and horses or other costly animals.
It’s vital to use the services of a trusted expert when trying to identify assets. With high net worth divorces, the list of assets is typically so long that it is easy to mistakenly forget important items if spouses try to compile this list on their own. Additionally, the wealthier spouse might attempt to hide valuable assets in an effort to reduce the amounts they’ll owe in spousal or child support. They might fail to disclose an inheritance they’re about to receive, stash luxury items in a safe or with a friend, or work with an employer to delay receiving payment on a lucrative bonus.
These hidden or overlooked assets might significantly impact the way assets are divided. Still, courts can only include known assets in the divorce decree. Suppose they’re not discovered until after the divorce is settled. In that case, spouses are usually forced to abandon their claim to these assets instead of enduring the anguish of reopening the divorce case. While a spouse might face stiff civil or criminal penalties if they intentionally hide assets from the financial disclosure, it still happens. A property might be incredibly easy to hide if one spouse owns property or financial assets overseas. It’s critical to work with a forensic accountant who can help uncover hidden assets and help ensure the marital estate division is truly based on an accurate and comprehensive asset disclosure.
Once the spouses disclose and identify all assets, the next step is determining an accurate value for each person’s property and the couple’s joint property. This is a complex process for wealthy couples because their property includes many assets that not only have significant face value but might also generate a great deal of additional value in the future. The simplest process is often for both spouses to sell every single asset and divide the profits equitably. However, it’s uncommon that both spouses will agree to this approach.
Without selling everything, it’s often impossible to get an accurate picture of the couple’s portfolio’s total potential value without the help of experts who specialize in the fields of each type of asset. A forensic accountant can help determine the cost for the couple’s financial holdings and help identify whether a property should be considered marital or separate. Other specialists that can be helpful in this process include business experts, real estate experts, and financial experts.
High net worth divorces involve the division of numerous tangible and intangible assets. These assets might include residential and commercial real estate, machinery, automobiles, airplanes, yachts, boats, jewelry, watches, fine art, valuable antiques, horses, or other costly animals, stocks, bonds, or annuities. For any tangible asset, an experienced appraiser will use the valuation method, such as the cost or market value method, which is most appropriate for the asset type.
For real estate, an appraiser will base the market value on things like the fundamental physical aspects that show the house’s condition, including the roof, structural integrity, kitchen features, etc. They might also consider other factors that influence the value like the neighborhood, depreciation, the sale prices of other properties in the area, and government or environmental regulations that impact the property.
High net worth couples often own multiple properties in addition to their primary residence. Properties might include residential homes, vacation properties, investment properties, and commercial or business real estate. Coming to a mutually agreeable solution to divide this property equitably is difficult. The family typically has emotional attachments to the homes, some properties might be in locations that would be inconvenient for work or school, and investment properties involve a long list of complications that one spouse will have to manage after the divorce.
One way to divide real estate is to sell all of the properties and split the proceeds equitably. This is one of the most transparent ways to divide the property. Both former spouses’ names will be off the stuff once the transactions are settled. However, this also requires the couple to endure real estate transactions, which can last an incredibly long time, especially if the individuals insist on getting top dollar in the sale. If it isn’t the right time to sell the properties for reasons like children are still in school, the couple can maintain joint ownership of the properties. However, this can be complicated in the long-term.
Another option is to divide the physical properties between the spouses. In this case, each spouse must remove their name from the properties that they relinquish to the other spouse. This is especially important if both spouses’ names are on a mortgage. Otherwise, spouses’ credit and finances can be irrevocably damaged if the other spouse fails to pay the mortgage on time.
The best way to establish one spouse as the sole owner of a property is to refinance the mortgage, which removes the other spouse’s name and financial responsibility. However, this can be difficult in couples with a large disparity of income between the spouses because the spouse who is retaining the property will have to qualify for a mortgage based on their sole income and debt-to-income ratio.
Nonetheless, it’s important to remember that real estate is just one part of the marital estate. A skilled divorce attorney can help find strategic ways to divide the overall estate. For example, even if one spouse gets all of the real estate, the other spouse could get assets of fair value like stock or valuable possessions.
People who run small businesses or have a professional practice as a doctor, accountant, lawyer or other licensed professional usually want to continue their practice after the divorce. To do this successfully, owners and professionals must take specific steps to protect their business.
The first step is to determine if the business is separate property or part of the marital estate. Any professional license related to the business that would terminate if it was transferred is considered individual property.
However, if the practice or business was started or if it grew substantially during the marriage, then it is usually classified as marital property that is subject to division in the divorce. If a person opened their business or started their practice before the marriage, then it might be possible to limit the estranged spouse’s rights to the business to only include a portion of the increase in value that took place during the marriage.
Next, it’s critical to determine an accurate value for the business. Business owners often hire expert business evaluators and forensic accountants to review tax returns, investigate all business assets, and evaluate business value. This valuation will be based on numerous factors, including:
Another vital element of businesses and professional practices that is invaluable but easy to overlook is Intellectual property (IP). IP includes intangible assets like trademarks, patents, copyrights, software, and trade secrets, which might be challenging to identify and value. Despite this difficulty, IP might be one of the most important assets to protect or pursue a divorce settlement because this property might retain enormous economic value.
A skilled divorce attorney can use these elements to form a plan to keep the business intact and fight for your best interests. They might suggest creative options, such as drawing up a postnuptial agreement or sacrificing assets, to help protect the business from suffering from the broken marriage.
High net worth divorces sometimes involve complex international issues, which range from overseas businesses, real estate, and bank accounts, to marriages between people from different countries. If spouses are of different nationalities, then more than one country might hold authority over the divorce. This can significantly affect the division of marital property, as well as court orders on child custody and spousal support. International issues in a divorce are particularly frightening because a mishandled divorce might have serious consequences. It could even mean that a parent could lose their children or claim on assets and have little recourse.
Multiple laws govern international divorce, such as the Hague Convention of the Civil Aspects of International Child Abduction. However, not every country actively observes these laws, plus each country has its own laws that might conflict with international law. For any property that’s owned in another country, not only will it be difficult to identify and value that property, but it will also be subject to taxes and laws in that country. It’s important to work with an experienced high net worth divorce attorney so they can help determine what issues might pertain to each case, help determine a path forward, and represent you and stand by your side throughout the process.
People might overlook retirement assets in the midst of a divorce because they’re most focused on their present finances; however, these assets can be an important element in long-term financial success. Value assessments of any property should go beyond the current face value, but this is particularly important with retirement assets. Anyone who overlooks their rights to retirement resources during a divorce settlement might cost themselves hundreds of thousands or even millions of dollars. A skilled pension valuator can help assess the total value of the asset.
As with any asset, the court might consider retirement funds as either marital or separate property. Whether a person can access their spouse’s retirement assets, such as a pension or 401K, in a divorce depends on many issues, such as:
To withhold a retirement asset, spouses must provide documents to show they owned the property before the marriage began and the extent to which the portion owned prior to the marriage has grown during the marriage.
Suppose a judge does allow division of the retirement benefits as part of the divorce settlement. In that case, they will issue a Qualified Domestic Relations Order (QDRO). This order directs how the assets will be divided and how the plan administrator should distribute them. Types of divisions that the judge might order include:
This type of division is the least likely option for the court to choose. It involves the recipient of the retirement asset paying their former spouse a certain dollar amount once disbursement from the asset begins.
This type of division does not involve a QDRO. With an offset division, one spouse receives the entire pension, and the other spouse receives other property that offsets the value of the retirement asset.
This last type of division is where the retirement resource is entirely divided between the spouses.
As a general rule, inheritance and gifts given to a single spouse are typically considered as separate property and as property that they’ll be able to keep after the divorce. However, there are many exceptions to this guideline, and spouses can invalidate this rule if they’re not careful.
A spouse who receives an inheritance has a couple of options they can use to protect it. One way is to make sure the property is absolutely not comingled or used by both spouses during the marriage. Any departure from this practice – such as depositing all or some of the inherited money in a joint account or using money from a marital account to make repairs to an inherited property – means that the non-recipient spouse might be able to make a claim on the inheritance.
Another option is to ask the non-recipient spouse to sign an agreement, such as a prenup, saying the inheritance belongs only to the recipient spouse, even if it’s used during the marriage. A third option is to negotiate to keep the estate during the divorce settlement. If an inherited property is crucially important to an individual, they might be able to convince their estranged spouse to accept some other asset of similar value in exchange for the inherited asset.
If the inheritance was granted to both spouses, then it is typically marital property. This rule applies even if the spouse’s name was not explicitly listed in the will or intestate, such as when a mother grants property to her son “and spouse.” Furthermore, if an inheritance might be coming during the divorce proceedings or shortly after the divorce and it is substantial, the courts might consider it as part of the recipient spouse’s income in the division of the marital estate. In any case, divorcing spouses should consider changing or amending their personal will and advising family members to inform parts of their will that pertain to the estranged spouse.
Courts typically treat monetary gifts similar to inheritances. For example, if one spouse received a financial gift before they were married or was the sole recipient of a gift during marriage and they didn’t commingle the funds or jeopardize ownership in some other way, then the funds are typically considered separate property. Gifts that one spouse gives to the other during a marriage are only individual property if the giver explicitly states this intention when they present the gift.
No matter what assets a person gains or losses in a settlement, divorce can have serious tax consequences if spouses try to handle the divorce on their own. A top-quality divorce attorney can help evaluate which penalties apply to each case and help make a plan to overcome these challenges. For example, couples can avoid significant tax consequences in dividing investment accounts if they handle the investment correctly. Any mistakes in dividing the accounts could dramatically increase each person’s tax liability.
For example, divorce might change a person’s tax filing status. Whatever a person’s legal marital status is as of December 31 each year will determine their tax status. It doesn’t matter if they haven’t lived with their spouse for several months; the tax code bases status solely on the current legal situation. If spouses previously filed as married, then they will now have to file as single if their divorce is finalized before the end of the year, even if they were still married for part of the tax year.
Additionally, if one person previously filed as the head of the household but they are not the custodial parents for the children, then they can no longer claim this status. When parents file taxes separately, only one parent can claim a child as a dependent. If there are multiple children, parents might choose to each claim a child or distinct children as dependents.
In addition, anyone going through a divorce must consider how the divorce will impact their taxes related to retirement assets. Spouses should use a trusted financial professional for any transfer out of a retirement account. Funds can usually transfer from a 401K to a Rollover IRA or between IRA accounts tax-free. However, the IRS typically considers a mistaken transfer to a non-qualifying account the same as a withdrawal before age 59 ½, which triggers serious financial penalties.
Laws concerning spousal support are complicated and continuously changing. A seasoned divorce attorney can help advise on the most recent tax laws and can help decide how married couples in the midst of a divorce should handle their taxes.
Divorce involving a wealthy couple might attract extra attention not generally seen in typical divorces. In addition to enduring the typical mental anguish common to divorce, the couple might also be subject to scrutiny from the media and the general public. This might involve journalists reporting on very private matters or even spreading unfounded rumors that are not only emotionally painful to the couple and their children but might also negatively impact their businesses, reputation, and potential for future earnings.
A seasoned divorced attorney can help spouses identify and protect themselves from these types of attacks. For example, they can work with a public relations specialist to influence the way the divorce is portrayed in the media and protect an individual’s reputation. They can also attempt to minimize privacy violations by petitioning to seal court proceedings, getting gag orders, and pursuing aggressive journalists with legal action if they trespass on private property or publish libel or slanderous materials.
High net worth divorces are so complex that the process can take months or even years. Due to this length, it’s critical for spouses to take intermediate measures to protect their legal rights, their finances, and their children while the divorce decree is being negotiated.
A skilled divorce attorney can help identify which issues might be the most pertinent during the divorce proceedings and can help secure temporary orders for things like child custody and spousal support. In the case of domestic violence, they can also help petition the court for a protection order to help keep the abused spouse safe during the divorce proceedings.
Going through any divorce is complex, but it’s especially complicated when high-value assets are involved. In an effort to end the divorce as quickly as possible, spouses might make hasty decisions to give up financial or personal rights that might cost them for the rest of their lives. Using an experienced divorce attorney can help make the process a little less frustrating and help protect long-term interests.
Skilled high-asset divorce lawyers understand that divorces are emotionally traumatic, and they can help protect people from making emotional decisions that they’ll regret later. A divorce attorney helps investigate what assets should be considered in the divorce decree, helps clients understand their legal options, form a plan that is best suited for clients’ personal interests, and sort through the complicated details on their behalf. They can also fight for their client’s share of the marital estate and the best possible settlement.
A skilled divorce attorney can hire and coordinate work with experts to determine a fair value for the spouses’ assets. For example, they can hire a forensic accountant to uncover hidden assets. This might involve reviewing tax returns and financial account statements or speaking with friends and family to determine what kinds of assets might be hidden and where they are. They might identify deferred compensation plans, review personal and business accounts for any significant transactions or write-offs, uncover properties that were quickly transferred to friends or family members, or investigate the sale or accelerated depreciation of assets.
Furthermore, an experienced divorce attorney can help ensure that clients don’t miss any important deadlines required under Alabama law. For example, after a spouse serves the other with divorce papers, they only have 30 days to respond. If they don’t respond to the divorce complaint by the deadline, then they might not be able to contest terms of the divorce settlement, including division of the marital estate, child custody, and alimony.
If you are considering a high net worth divorce, you need an experienced divorce attorney on your side with a record of success so you can trust they will look out for your best interests. At Massey, Stotser & Nichols, we have substantial experience helping clients just like you overcome difficult circumstances like divorce to help get you on the road to recovery. Our skilled high-asset divorce lawyers have been nationally recognized for their excellent legal service and commitment to the Birmingham, Alabama community and surrounding areas.
We understand how painful divorce is, and our compassionate divorce attorneys will do everything they can to help you through this difficult process. While some issues are similar across divorce cases, each person’s situation is unique and deeply personal. We’ll give you the personal attention you deserve, help you form a plan that works best for you and your family, and fight on your behalf. Put the top-quality team at Massey, Stotser & Nichols to work for you. Contact us today at (205) 838-9000, through our online contact form, or via email, Facebook, Twitter, or LinkedIn.
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